2019 Second Quarter and Interim Results Presentation
August 14, 2019
1 Cautionary Note
This presentation may contain forward-looking statements relating to the forecasts, targets, outlook, estimates of financial performance, opportunities, challenges, business developments, business plans and growth strategies of Tencent Holdings Limited (the “Company” or “Tencent”) and its group companies. These forward-looking statements are based on information currently available to Tencent and are stated here on the basis of the outlook at the time that this presentation was produced. The Company undertakes no obligation to publicly update any forward- looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. The forward- looking statements are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. The forward- looking statements may prove to be incorrect and may not be realized in the future. Underlying the forward- looking statements are a large number of risks and uncertainties. Therefore you should not rely on any of these forward- looking statements. Please see our various other public disclosure documents for a detailed discussion of those risks and uncertainties.
This presentation also contains some unaudited non-GAAP financial measures which should be considered in addition to, but not as a substitute for, measures of the Company's financial performance prepared in accordance with IFRS. In addition, these non-GAAP financial measures may be defined differently from similar terms used by other companies. The Company's management believes that the non-GAAP financial measures provide investors with useful supplementary information to assess the performance of the Company’s core operations by excluding certain non- cash items and certain impact of acquisitions. For further explanation of our non-GAAP measures and reconciliations between our GAAP and non-GAAP results, please refer to our earnings announcement.
In addition, information relating to other companies and the market in general presented in these materials has been obtained from publicly available information and other sources. The accuracy and appropriateness of that information has not been verified by Tencent and cannot be guaranteed.
The reporting currency of the company is Renminbi. For the purpose of this presentation, all figures quoted in US dollars are based on the exchange rate of US$1 to RMB6.8747 for 2Q2019.
2 1. Overview
2. Strategy Review
3. Business Review
4. Financial Review
5. Q&A
3 Financial Highlights
in billion RMB 2Q2019 2Q2018 YoY 1Q2019 QoQ
Total Revenue 88.8 73.7 +21% 85.5 +4% Value Added Services 48.1 42.1 +14% 49.0 -2% Social Networks 20.8 16.9 +23% 20.5 +2% Online Games 27.3 25.2 +8% 28.5 -4% Online Advertising 16.4 14.1 +16% 13.4 +23% Media 4.4 4.7 -7% 3.5 +26% Social and Others 12.0 9.4 +28% 9.9 +21%
FinTech and Business Services 22.9 16.7 +37% 21.8 +5%
Others 1.4 0.8 +74% 1.3 +9% Gross Profit 39.1 34.4 +14% 39.8 -2% Operating Profit 27.5 21.8 +26% 36.7 -25% Net Profit to Shareholders 24.1 17.9 +35% 27.2 -11%
Non-GAAP* Operating Profit 27.3 22.3 +23% 28.5 -4% Operating Margin 30.7% 30.2% +0.5ppt 33.3% -2.6ppt Net Profit to Shareholders 23.5 19.7 +19% 20.9 +12%
* Please refer to Slide 20 for details of non-GAAP adjustments. 4 Key Platforms Update
Online Games Platform Video • #1 by users in China across Online • #1 by mobile DAU PC and smart phone Games News #1 globally by revenue • • #1 news services by MAU Music Media • #1 music services platform Literature Weixin & WeChat • #1 online content library • #1 smart phone and publishing platform community • MAU at 1,133m QQ & Qzone Communications • QQ smart devices FinTech & Social MAU at 707m • Qzone smart devices Mobile Payment MAU at 554m • #1 by MAU & DAU
Cloud App Store • #1 by MAU Cloud Mobile Security Utilities • #2 service provider • #1 by MAU Mobile Browser • #1 by MAU
*All rankings above refer to China market, unless otherwise stated. Company data as of June 30, 2019. 5 1. Overview
2. Strategy Review
3. Business Review
4. Financial Review
5. Q&A
6 High-Quality Content – A Strategic Asset
High-quality content sustains appeal to users, now and in future
Highly regarded Professional documentaries sports & eSports Movies Drama series Anime series Educational Life-long bonding Immersive Thought-provoking Stimulate imagination
The Planets 2018-2019 NBA King's Avatar Explore with the Note Land of Warriors Anime Movie
Mini- and short-video consumption has boomed in China, but mostly additive to Internet time spent • Mini-video boom coincided with acceleration in time spent online, as mini-video enabled users to derive entertainment in previously under-utilized pockets of time • Many long-form content appear unaffected - time spent viewing sports and popular drama series on healthy growth trends
Emerging synergies between long- and short-form content • Repurpose long-form video content to create differentiated short- and mini-video content • Highlights or short video clips to attract traffic to related long-form content • Strong growth in short video consumption within Tencent Video app
7 Unique Capabilities in High-Quality Content
High-Quality Content Creation Platforms Category-Leading Content Platforms
Fans Tencent Tencent Tencent Tencent Tencent Tencent Tencent Games Video Sports TME Comics Games Video Comics
High-DAU Platforms External Content Partners Content
Weixin QQ QQ Browser YingYongBao
Source high-quality content, Expertise in content curation and Multiple platforms provide internally and externally user management access to extensive user base • In-house content incubation • Operations teams to enhance content • Category-leading plaforms and capability to extend IPs packaging provide content to core users across formats • Technology teams provide smooth • High-DAU platforms facilitate • Partnership with best-in-class streaming experience easy access and amplify user content providers globally • Customized communities foster user coverage through social interactions and connections with IPs interactions
8 #1: Convert Online Novels Into Cross-Media IP Entertainment
The King’s Avatar The Master of Diabolism
• Top novel IP, belonging to China Literature • Top novel IP from joint venture of China • Breakout success in IP development across Literature media • Anime: exceeded 2.2 billion video views • Anime: ranked #1 modern-day anime by video • Drama: praised for screenplay and Chinese views in 2017 style art design; ranked #1 costume drama by • Drama: ranked #1 online modern-day drama by video views in July 2019 video views in August 2019 • Movie: to be released in August 2019 • Mobile games: to be developed by Tencent Games
Anime Series Drama Movie Anime Series S1 Drama Anime Series S2
9 #2: Extend Win-Win Partnership with NBA
Tencent Games Tencent eSports Tencent News User Interaction
IP Content Penguin Media Tencent Sports Content Platform
QQ Tencent Video Weixin
Progress since 2015 Season Next contract until 2025 Season
Tencent & NBA Initiatives Successful Consequences Extended Contract • Established professional • Full season NBA audience base • Deliver NBA content across high- sports content curation expanded to 490m and UV per live- DAU platforms in live streaming, team to deliver exciting streamed game increased to 3.7m, video-on-demand, short- and mini- game content each tripled from 4 years ago video formats • Built up innovative studio to • Increased NBA brand awareness in • Enrich membership benefits create on-the-scene China including club merchandise, online experiences • Tencent Sports became the #1 streaming privileges, joint • Distributed NBA-related destination for sports fans membership discounts content across high-traffic • Cooperate in developing NBA • Increased advertising revenue, platforms for easy access launched subscription model mobile games and eSports events
10 1. Overview
2. Strategy Review
3. Business Review
4. Financial Review
5. Q&A
11 Revenue by Segment
88.8 2% 84.9 85.5 2% 80.6 3% 1% 73.5 73.7 26% 1% 1% 25% 26% 24% 65.2 66.4 21% 23%
21% 56.6 18% 16% 18% 49.6 17% 14% 20% 20% 19% 17% 43.9 15% 19% 40.4 15% 18% 14% 35.7 12% 33% 10% 19% 31% 19% 39% 28% 18% 34% 41% 37% 32% 42% 46% 42% 48% 45%
23% 25% 23% 24% 24% 23% 23% 23% 25% 23% 24% 24% 24%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
Social Networks Online Games Online Advertising FinTech and Business Services Others (In billion RMB)
* Starting 1Q19, we move “FinTech and Business Services” revenues out of the Others segment to form a new segment. Please refer to Slide 17 for retrospective figures. 12 Value-Added Services
Social Networks
• Virtual item sales in live streaming services +14% -2% and games contributed to revenue growth YoY QoQ • VAS subscriptions increased 10% YoY to 169 million, within which video reached 97 million mainly due to joint membership promotions 48.1 49.0 48.1 and self-commissioned Chinese anime series 42.1 20.5 +23% 20.8 +2% 20.8 16.9 Online Games • Total smart phone games revenue* was RMB22.2 billion, up 26% YoY, due to +8% -4% popularity of key titles and new releases. 25.2 27.3 28.5 27.3 Revenue grew 5% QoQ, as new game releases offset weak seasonality
2Q18 2Q19 1Q19 2Q19 • PC client games revenue decreased 9% YoY to RMB11.7 billion but cash receipts up YoY; Social Networks Online Games revenue down 15% QoQ due to weak In billion RMB seasonality
* Total smart phone games revenue includes smart phone games revenue booked under Online Games and related platform revenue booked under Social Networks.
13 VAS - Social Networks
Weixin QQ
Unique and vibrant Mini Programs ecosystem: A major version upgrade:
• Provides development tools, access to • Added Mini Programs – QQ users consumers and monetization opportunities, particularly fond of entertainment and attracting many developers and service games-related categories providers. The number of mid/long- tail Mini Programs more than doubled YoY • Enhanced chat experience, e.g., video, voice, extended screen photo format; • Content Mini Programs allow users to create, daily messages up QoQ upload and share interesting videos, music, and news more conveniently; more content • Upgraded algorithms to recommend new Mini Programs with over 1-million DAU friends based on common interests and emerged, and time spent per user increased shared contacts
• Daily messages and video uploads sustained solid growth
14 VAS - Online Games
Smart Phone Games • Released 10 games in 2Q versus 1 game in 1Q • HoK revenue increased YoY; Perfect World Mobile contributed full-quarter revenue; Peacekeeper Elite contributed limited revenue due to our deferral policy • In July, new releases included KartRider Rush, Game of Honour of Kings Thrones: Winter is Coming, Dragon Raja • Internationally, expanding user base with existing blockbuster PUBG MOBILE and new games, e.g., Speed Drifter, Chess Rush
Peacekeeper Elite
PC Client Games • LoL DAU and time spent benefitting from new play mode Teamfight Tactics since late June - clear global leader in auto-chess category; cash receipts in China increased YoY • DnF fine-tuned gameplay to prioritize user engagement and reduce monetization
15 Online Advertising
Segment revenue grew YoY amidst challenging macro-economic conditions and industry competition. Sequentially, revenue was boosted +16% +23% YoY QoQ by strong demand from eCommerce in June and online education before summer holidays
16.4 16.4 Media Ad 14.1 4.4 13.4 4.4 • Revenue decreased 7% YoY, due to -7% +26% unexpected delay of certain top-tier dramas 4.7 3.5 and the absence of FIFA World Cup reducing sponsorship advertising dollars • Mobile Video DAU remained stable, +28% 12.0 +21% 12.0 9.4 9.9 contributing to solid growth of in-feed ads YoY and QoQ
2Q18 2Q19 1Q19 2Q19 Social & Others Ad
Media Social and Others • Revenue increased YoY due to higher rd In billion RMB impressions from the 3 ad load in Weixin Moments and QQ Kandian
16 FinTech and Business Services
FinTech Services
• Commercial payments grew rapidly - users, +37% +5% YoY QoQ merchants, transaction volume and revenue • Users increasingly kept their money within our payments ecosystem: - LiCaiTong AUM exceeded RMB800 billion as at end of June - Lower frictional costs for users - Withdrawal fee revenue and bank charges reduced for us
22.9 21.8 22.9 • Focus on risk management 16.7 Business Services
• Expanded sales team and enhanced product 2Q18 2Q19 1Q19 2Q19 portfolio to sign up more key accounts and large contracts, driving YoY revenue growth In billion RMB • Increased penetration among SMBs via strategic partnerships with ISVs and resellers *Segment revenue was RMB15,182 million in 1Q18, RMB16,666 million in 2Q18, RMB19,693 million in 3Q18 and RMB21,597 million in 4Q18. **In 2Q19, excluding interest income on custodian cash, segment revenue grew 57% YoY and 7% QoQ. 17 1. Overview
2. Strategy Review
3. Business Review
4. Financial Review
5. Q&A
18 Income Statement
in million RMB 2Q2019 2Q2018 YoY 1Q2019 QoQ
Revenues 88,821 73,675 +21% 85,465 +4% COPS (49,695) (39,229) +27% (45,645) +9% Gross profit 39,126 34,446 +14% 39,820 -2% Interest income 1,652 1,072 +54% 1,408 +17% Other gains/(losses), net 4,038 2,506 +61% 11,089 -64%
Operating expenses (17,295) (16,217) +7% (15,575) +11% Operating profit 27,521 21,807 +26% 36,742 -25% Finance costs, net (1,982) (1,151) +72% (1,117) +77%
Share of profits/(losses) of associates & JV 2,370 1,526 +55% (2,957) N.A.
Income tax expense (3,225) (3,602) -10% (4,812) -33% Net profit 24,684 18,580 +33% 27,856 -11% Net profit to shareholders 24,136 17,867 +35% 27,210 -11% Diluted EPS in RMB 2.520 1.868 +35% 2.844 -11% Non-GAAP: Net profit to shareholders 23,525 19,716 +19% 20,930 +12% Diluted EPS in RMB 2.456 2.062 +19% 2.187 +12%
19 Non-GAAP Adjustments
Net (gains)/ Amortisation Tax GAAP SBC losses from Impairment Non-GAAP YoY QoQ in million RMB of intangible effect3 2Q2019 investee provision2 2Q2019 change change assets companies1
Operating profit 27,521 2,453 (4,950) 118 2,139 - 27,281 +23% -4%
Net profit 24,684 2,373 (6,523) 1,486 2,492 (321) 24,191 +18% +12%
Net profit to shareholders 24,136 2,296 (6,522) 1,432 2,492 (309) 23,525 +19% +12%
Operating margin 31.0% 30.7% +0.5ppt -2.6ppt
Net margin 27.8% 27.2% -0.6ppt +1.8ppt
Note:
1Including net (gains)/losses on deemed disposals, disposals of investee companies, fair value changes arising from investee companies, and other expenses incurred from equity transactions of investees.
2Impairment provision for associates, joint ventures and intangible assets arising from acquisitions.
3 Income tax effects of non-GAAP adjustments.
20 Segment Gross Margin
66.7 65.2 63.2 63.3 60.9 60.6 59.9 59.3 59.0 57.6 56.5 53.4 52.6
Value-Added Services (%)
48.6 45.3 46.6 41.9 36.3 34.8 37.8 36.3 37.2 37.4 36.7 36.6 31.2
Online Advertising (%)
28.5 26.1 26.0 25.1 24.5 24.0
FinTech and Business Services (%)
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
21 Operating Expenses
S&M G&A (incl. R&D) (in billion RMB) (in billion RMB)
+28% +11% YoY QoQ
12.6 12.6 11.3 -26% +11% 9.9 YoY QoQ 5.5 5.5 +32% 4.8 +13% 4.2
+24% 7.1 +10% 7.1 6.4 5.7 6.5 4.7 4.2 4.7
2Q18 2Q19 1Q19 2Q19 2Q18 2Q19 1Q19 2Q19
G&A (excl. R&D) R&D
22 Margin Ratios
57.3 54.0 53.9 51.3 50.0 50.4 48.6 47.4 46.8 46.6 44.0 41.4 44.1
GAAP Gross Margin (%)
41.2 37.4 37.2 34.1 35.4 34.4 33.1 32.9 30.2 33.3 30.7 28.0 26.4
Non-GAAP Operating Margin (%)
32.2 29.5 28.3 29.0 29.1 27.7 27.8 27.2 26.3 26.0 25.3 23.8 25.4
Non-GAAP Net Margin (%)
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
23 CAPEX, FCF and Cash Position
in million RMB 2Q2019 2Q2018 YoY 1Q2019 QoQ
Operating CAPEX 3,760 6,590 -43% 3,870 -3%
Non-operating CAPEX 602 495 22% 636 -5%
Total CAPEX 4,362 7,085 -38% 4,506 -3%
Operating Cash Flow* 25,005 22,512 11% 28,799 -13%
Less: CAPEX Paid 4,307 6,204 -31% 4,866 -11%
Free Cash Flow* 20,698 16,308 27% 23,933 -14%
Total Cash 184,426 134,176 37% 174,677 6%
Less: Total Debt 200,192 169,477 18% 184,272 9%
Improved Cash Position (15,766) (35,301) (9,595) -64% +55%
Fair value of our shareholdings in listed investee companies, excluding subsidiaries, was approximately RMB 329.0 billion (USD47.9 billion) as at June 30, 2019
* In 2019, we have re-classified interests paid from operating to financing cash flows, and re-stated comparative figures accordingly 24 1. Overview
2. Strategy Review
3. Business Review
4. Financial Review
5. Q&A
25 Tencent Holdings Limited
2019 Second Quarter and Interim Results Presentation
Thank you! https://www.tencent.com/ir
26